Markets

U.S. natural gas prices at Henry Hub have surged nearly 25% to top $3.60 per million British thermal units as a cold spell gripped the nation, pushing up domestic gas demand for power generation along with shale gas production. As a consequence, U.S. LNG exports were slightly lower this week.

VAKT, creator of a commodity post-trade processing system, has just won three new three new strategic investors: Chevron, Total and Reliance Industries. The oil majors will also become early users of VAKT’s blockchain-enabled platform.

Japan’s Hitachi Group today decided to suspend construction works at its Horizon division’s Wylfa nuclear power plant in northern Wales. With the £20 billion Wylfa project shelved, Hinkely Point is now the only nuclear project left in Britain, so flexible gas power and renewables will have to fill the looming capacity gap.

2019 could be a “year of incongruity,” Energy Aspects says, pointing to a rush of supply FID for gas liquefaction and export terminals happening against a backdrop of a market in oversupply. Analysts expect four new LNG Trains to start up or ramp up in Q1-2019, and considering the mild Asian winter, this leaves some 5.7 Bcm y/y of incremental supply available for the European market that quarter.

South Australia’s large-scale Hornsdale battery (100 MW) has helped save nearly $40 million in grid stabilization costs in its first year running, but the success of energy storage undermines the role of gas peaking plants. Flexible combined-cycle plants get dispatched less, also due to higher gas prices, leaving some at risk of mothballing.

As the global sentiment turns against coal, the Institute of Energy Economics Japan (IEE Japan) has modelled a case in which all new coal-fired power plant projects would be banned from 2020. If natural gas was to replace coal in the energy sector, global primary gas consumption would surge by 1.3 trillion cubic metres (Tcm) to reach 7.3 Tcm in 2050.

Britain is strong market for sellers looking to home excess gas supply this winter, National Grid said when announcing a record send-out of its Grain LNG import terminal. A robust NBP price and anticipated lower variable costs for gas processing are likely to keep attracting spot cargoes to the UK.

Demand for LNG in Japan is anticipated to fall for the third year in a row as the renewable energy build-out accelerates and nuclear reactors restart gradually. According to the Institute of Energy Economics Japan (IEE Japan) LNG supplies will ease from 82.3 mt in fiscal 2018, down 0.3% to 82 million ton in fiscal 2019, which starts on April 1.

Gassco, the Norwegian natural gas pipeline operator, transported 114.2 billion cubic metres of gas during 2018 from the Norwegian Continental Shelf to mainland Europe and the UK. That is nine times Norway’s annual hydropower output and the second-highest exports ever.

Growth prospects for gas-distribution utilities are at risk in several American states, as decarbonization policies on state level and rising cost-competitiveness of renewables undermine the role of gas. According to McKinsey analysis, this could pose a challenge to gas distributors in some states as early as 2026, and in most of them by 2030.

Texas’ electric power grid operator ERCOT is heading into spring and summer 2019 with lowest ever supply of back-up power. The actual reserve margins fell from 8.1% in December to 7.4% in January – just half of ERCOT's 13.75% reserve margin goal.

For January, another 250 billion cubic feet (bcf) is likely to be lost in gas demand amid unseasonably warm weather, erasing fears about a storage deficit. On the contrary, if the mild weather continues Energy Aspects expects end-March inventories to remain north of 1.55 trillion cubic feet (tcf).

Power producers in Europe, as well as parts of the U.S. and Australia, have been feeling the pinch due to a decline in wholesale energy prices brought about by stagnant demand, low gas prices and higher output of generation with low marginal costs, notably renewables. New-builds are no longer profitable which puts reserve margins at risk, hence the International Energy Agency (IEA) calls for a re-design of competitive power markets.

Mitsubishi Hitachi Power Systems (MHPS) chief executive Kenji Ando has used his New Year address to warn of a difficult business environment in 2019, with “turbid conditions” in the thermal power generation sector. “Our competitors are also seeing sharp declines in business results,” he said, stressing MHPS will forge ahead with business restructuring.

The spread in natural gas spot prices between the Henry Hub in Louisiana and the Appalachian region continued to narrow over the year just past. Prices fell at Henry Hub throughout December, and as of January 2, 2019, they were at around $2.79/mmBtu while Appalachian prices kept trading at a discount due to pipeline constraints.

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